Consider an FI Holds Two Loans with the Following Characteristics

question 40

Multiple Choice

Consider an FI holds two loans with the following characteristics: $\begin{array}{c|c|c|c|c|c|}\hline \text { Loan i } & \text { Weight I } & \begin{array}{c}\text { Annual spread between loan rate and Fl's } \\\text { cost of funds }\end{array} & \begin{array}{c}\text { Annual fees } \\\text { Loss to Fl given } \\\text { default }\end{array} & \begin{array}{c}\text { Lected default } \\\text { frequency }\end{array} \\\hline 1 & 0.45 & 3.5 \% & 1.5 \% & 30 \% & 4 \% &\mathrm { P } _ { 12 } =-0.20\\\hline 2 & 0.55 & 4.5 \% & 2.0 \% & 25 \% & 3 \% \\\hline\end{array}$
What is the return on the loan portfolio (round to two decimals) ?

• A)3.80%
• B)5.75%
• C)9.55%
• D)4.87%

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Definitions:

Ovarian Cortex

The outer layer of the ovary, containing the follicles with eggs, involved in the reproductive cycle and hormone production in females.

Female Child

A young person of the female gender, typically referred to in the context of distinguishing sex in juveniles.

Primary Oocyte

An immature egg cell that has begun the first meiotic division but is arrested in its process until puberty in females.

Follicular Cells

Follicular cells are cells that line the follicles in the thyroid gland and are responsible for the production and secretion of thyroid hormones.